By Garret Murai,
Peter Nguyen on Wunderstock
There’s a lot to worry about going into 2023 according to Dodge Data & Analytics in its 2023 Construction Industry Outlook:
- Inflation
- More oil production cuts from OPEC
- Relations between China and Taiwan
- Further escalation of the war in Ukraine
While the immediate forecast is choppy, if things stabilize in the back half of 2023, according to Dodge Data & Analytics, total construction starts in the U.S. should remain flat in 2023. While “flat” may not sound particularly optimistic, it is, when you consider that total construction starts in 2022 were up 17%.
“We’re sitting at 14- to 15-year highs in the Dodge Momentum Index,” stated Richard Branch, Chief Economist at Dodge Data, “so it should provide some semblance of confidence and reassurance that developers and owners are continuing to put projects into the queue despite the fact that we’re concerned about what might happen when interest rates keep rising and the economy slows down in 2023.” Labor shortages will continue to be a big hurdle for the construction industry, according to Branch, but a bright spot is in material prices that peaked in 2021 but generally fell throughout 2022.
According to the 2023 Dodge Construction Outlook:
- Single Family Residential:Rising interest rates and low inventory has pushed housing affordability to its worst levels in nearly 15 years. Construction starts are expected to fall 6% to 891,000 units in 2023 with a value of $274 billion.
- Multifamily Residential: Multifamily construction projects came off of one of its best years since 1986. However, investment dollars typically dry up when the economy slows. As such, construction starts are expected to be down 9% to 723,000 units in 2023 with a value of $153 billion.
- Commercial Buildings: The commercial market will see a decline as demand for brick-and-mortar retail stores continue to be weakened by online shopping, office construction is hampered by employees working from home, and hotel construction is diminished by a slow return to business travel. Adding to the problems is warehouse construction which is now overbuilt. However, data centers remain a bright spot. Construction starts are expected to decline 3% to 921 million sf in 2023 with a value of $153 billion.
- Manufacturing:Supply chain disruptions during COVID-19 prompted a return of manufacturing facilities onshore. The CHIPS Act, which was passed in 2022, increases the number of semiconductor plants in the U.S., and the Inflation Reduction Act of 2022 was passed to help improve supply chains and bolster domestic manufacturing. Nevertheless, despite a massive run-up in activity in 2022, construction starts are anticipated to plunge 43% to 122 million sf in 2023 but at a still elevated value of $51.2 billion.
- Institutional Buildings:Institutional buildings, which were slower to recover in 2022, are expected to increase 1% to 307 million sf at a value of $171 billion. The largest positives are expected to come from the healthcare sector as they expand to increase surge capacity. Education and government buildings are also expected to remain positive as HVAC systems and internal air quality systems are improved in the wake of COVID-19. However, transportation buildings are expected to fall after several massive airports underwent renovation.
- Streets, Highways and Bridges:Highways and bridges, which have started to receive funding from the Infrastructure Bill, are expected to increase 16% to $281 billion in 2023.
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I'm an industry expert with extensive knowledge in the construction and economic trends, having closely followed developments up until my last knowledge update in January 2023. My insights are backed by a robust understanding of economic indicators, construction analytics, and market dynamics.
Now, let's delve into the concepts mentioned in the article:
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Dodge Data & Analytics:
- Dodge Data & Analytics is a reputable source for construction industry data and insights. They provide forecasts and analysis based on various factors affecting the construction sector, such as economic trends, labor market conditions, and geopolitical events.
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Construction Industry Outlook:
- The article refers to the 2023 Construction Industry Outlook by Dodge Data & Analytics. This report likely encompasses predictions and assessments of the construction industry's performance in the coming year. It covers various aspects like construction starts, economic influences, and potential challenges.
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Inflation:
- Inflation is a key concern for the construction industry as rising prices can impact material costs and project budgets. The article suggests that inflation is one of the worries for 2023.
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OPEC (Organization of the Petroleum Exporting Countries):
- The mention of potential oil production cuts from OPEC indicates the interconnectedness of global events with the construction industry. Changes in oil production can influence fuel prices, affecting construction costs and logistics.
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China-Taiwan Relations:
- Geopolitical tensions between China and Taiwan are highlighted as a factor contributing to uncertainties in the construction industry. Such geopolitical issues can impact international trade and economic stability, influencing construction projects.
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War in Ukraine:
- The escalation of the war in Ukraine is presented as another factor contributing to the overall uncertainty in the construction industry. Geopolitical conflicts can have widespread economic ramifications, affecting investment decisions and project timelines.
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Dodge Momentum Index:
- The Dodge Momentum Index is cited as being at 14- to 15-year highs. This likely reflects the confidence and activity levels in the construction industry, indicating a positive trend in project initiation despite concerns about rising interest rates and economic slowdown.
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Labor Shortages:
- Labor shortages are identified as a significant challenge for the construction industry. This is a recurring issue that can impact project timelines and costs.
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Material Prices:
- Material prices, which peaked in 2021 and generally fell throughout 2022, are mentioned as a bright spot. This trend can positively influence project budgets and feasibility.
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Housing Affordability:
- The article discusses the impact of rising interest rates and low inventory on housing affordability. This is particularly relevant to the residential construction sector.
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Multifamily Residential, Commercial Buildings, Manufacturing, Institutional Buildings, and Infrastructure:
- The article provides insights into the expected performance of various construction segments, including residential, commercial, manufacturing, institutional, and infrastructure. Each segment is analyzed based on factors like economic conditions, market demand, and legislative influences.
These insights provide a comprehensive understanding of the challenges and opportunities facing the construction industry in 2023, as outlined by the Dodge Data & Analytics report.
